Archive for April, 2010

In the previous post, I proposed a six layer human pyramid that could overlay data-driven relevancy and discussed the bottom 3 levels as they relate to a ‘Recent Releases’ dvd movie website. In this post, I’ll describe the top 3 layers, which are potentially the most accurate filters, but can be difficult to accurately achieve. For reference, here is the pyramid again:

The bottom 3 layers focus on other people: what critics like, what the community likes, what my friends like. The top 3 layers shift away from this and move the focus to me. They are personalized to my tastes, which adds a layer of friction to the service, as I must first provide information about myself to the site before it can use these layers as filters to better serve up relevant results. Each layer going up needs more data about me than the last to be successful.

When building a recommendation site, product or service, there are six human layers you can pile on top of pure data-based relevancy. To define the scope of ‘recommendation product’ more clearly, any search service is a recommendation service. Google is recommending websites to the user based on the search term and the page ranks, meta data and inbound links to the relevant websites. If a user gives input to a website and the website then returns output based on that input, then it is a recommendation service. The 6 layers are illustrated in the pyramid below, with the top level being the most accurate, but also usually the hardest to accurately achieve. In this post, I’ll discuss the bottom 3 layers, while saving the top 3 layers for tomorrow’s post.

I’ll use the example of a ‘Recent Releases’ dvd movie site to illustrate the 6 pyramid levels. Without the pyramid, the site would show the 90 most recently released dvds, either alphabetically or chronologically. Instead of making the user sift through all 90 titles and make a decision based solely on name, plot, genre, cast and crew, we can add some or all of the layers below to filter the list to the most relevant releases and give the user more data to use when making a decision. This increases the signal:noise ratio, which is an important meta strategy for the web as a whole, as the internet is full of noise and getting noisier each day with tweets and status updates and blogs and microblogs, etc. Filtering through all of the content on the web to find what is relevant and useful to you will be of growing importance and solutions to this problem will be a big part of the next phase of the web.

Once you’ve launched the product and tested how users interact with it, getting feedback on if they find it useful and what changes would make it a better mousetrap for them, you need to be prepared to change direction accordingly. Many startups fail because they were built for a singular idea that was supposed to be the perfect solution to a problem and they were too focused on that exact solution that they didn’t adapt to the market and users. Rarely will your product be exactly what is needed if it’s a new or unique solution. You design the product thinking of yourself as the user, but then testing shows that you are not your user and they really want something slightly, or vastly, different from your offering. If this is the case, then adapt and adjust your roadmap accordingly. Rapidly iterate, while testing, to find the right combination that hits a nerve with your users and allows your product to take off.

Most successful startups are very different when they reach success from when they first started. For example, Paypal was actually started as a cryptography service, then evolved to pda payments before becoming successful at being the de facto online payment system. People talk about Agile programming all the time, but product management needs to be agile as well. You don’t need to create a 5 year business plan before you create your startup; in fact, there is very little chance that the plan will still be accurate even a few months into your startup if you are doing it right. What you need is a good idea of how to solve a pain point in a better way than currently available, the motivation and resources to build a prototype of that solution, the data from testing the solution on consumers to gauge market reaction, and the ability to pivot and change the solution to match what the market actually will respond to.

Once you’ve done the hardest step, launching the product, you need to measure your users. The reason to launch early is to see how users interact with your product or service and if you have a viable product. To do this, you need to start tracking key metrics and user behavior. It is important to focus on the activity and metrics that really matter in determining if your users are interested in your product as well as how they interact with it. If your product depends on users registering and contributing to the community, then measure that. To do this, we can use a variety of tools and services, free and expensive, using one or both of two methodologies.

Free Tracking Tools

Google Analytics – Great free tool from google that measures user behavior and traffic sources but also allows you to set goals to measure the KPIs that matter to you. You should set this up immediately.

Userfly – A free user session tracking tool. Records the actions of your users and lets you watch a video playback. Gain great insight into your users by seeing exactly where they go on your page and where they hit stumbling blocks or are confused about the next step.

Feedback Form – Let users give you feedback and suggestions directly. The insight gained from this qualitative data can be great.

Expensive Tracking Tools

Omniture SiteCatalyst – Robust tracking solution that is highly customizable and scalable. You’ll need to add tracking code all over your site, but the reports and data mining possible are powerful.

Tealeaf – Records user sessions and compiles into reports, breaking down users by behavior types so you can see where users are failing to do what you expect. You can then watch individual sessions to gain insight into what they were thinking to figure out why. This service is great at combining quantitative and qualitative data, but can be very expensive.

Testing Methods

A/B Split Testing – Present one group of users with one experience and another with a slightly different experience and measure the groups against each other to determine which experience is more effective. In an ideal world, you would A/B test everything before you put it on your site. This means everything from the color of a box outline, the placement of a button or link, to the wording of a caption.

Multivariate Testing – By testing multiple variables at once, you can gain more insight into how multiple elements or experiences affect the metrics in less time and users than with multiple iterations of A/B testing. You can actually test as many variables as you want, but the more you test, the more users it takes to get statistically significant results.

We have established that we aren’t our users and that users can be unpredictable in how they use our site. So the best option is to find out how users behave with our site as early on as possible. Therefore, we should launch with the Minimum Viable Product (MVP) in order to get it in front of users to determine its future.

What the MVP is varies by product or service. If you are selling software to businesses, then perhaps its just paper prototypes: photoshop comps depicting what the product will look like. You can show them to potential customers to see if they are interested as well as get feedback from them before you even write a line of code. If you are creating a new website to soothe a pain point, then create just that functionality and don’t worry about the other standard functionality that sites in your market need to have. If you are accurately soothing the pain, then users will respond to your offering; if you aren’t, then they won’t.

Don’t spend months or years developing a product, scared to bring it to market and have it fail; scared that once it’s visible some other company will copy it and steal your potential customers. Get the product out there as soon as possible to test its validity. You need to verify that there is a market for your product and you don’t need to build out every piece of functionality to do so.

You’ve identified a pain point and figured out a solution to eliminate or alleviate the pain. So you get to work building out the product, excited that you are creating the next big thing that will take the web by storm. You spend months building it perfectly to your spec and then launch it and…users hate it, or don’t understand it, or don’t get it. You feel discouraged and abandon the project, never realizing your dream of creating a successful product.

To avoid this, the first step is to admit that you are not your user. You know every detail about your product; your users will spend a few seconds before deciding to leave or to engage with your product. And since users scan, not read, your site, they may engage with your product in a way you didn’t intend. Assuming you know your users and how they will use your product can spell doom if you aren’t ready to test that theory and react if the findings are not what you expect. For example, if you build a sprocket search site but also wish to allow users to search for non-widgets like cogs and widgets as a secondary task, you may build the following page:

If you launch with this page, you will find that a good number of users will actually search for sprockets in the cogs search box. They will scan right to middle of page and see the search box in a similar place to google and bing and enter their search there. It doesn’t matter that you have 4 lines of text telling the user this is for cogs, not sprockets. Users scan; they don’t read. So your users will search for sprockets in the cogs section and get back no or invalid results, resulting in them leaving your site.

If you instead break up the page with an image before the Cog search, then users will not scan down to the secondary search area and will search for Sprockets in the Sprocket search in the header. To you as the creator, the first interface was perfectly clear; after all, you had 4 lines of text specifying the purpose of the secondary search box. But you are not your user.

As users scan, they are looking for familiar clues about what your product does and how it can help them accomplish their needs. The clues they get are based on their experiences with other sites. Jakob’s Law states that “users spend most of their time on other sites,” so if you diverge too radically from the standards users see on other websites, then they won’t be able to relate to or quickly understand your solution and will move on to the next website. Especially in the early days, you should keep your site as easy to understand for new users as possible. Later on, there are ways you can move past this to set new rules with your users, but don’t handicap yourself in the beginning.

How Users Scan a Website

In the first releases of your product, keep the site layout consistent with internet standards and put a very clear focus on the main call to action that you want users to respond to. Differentiate on the product or service, not on an innovative landing page layout. This will help ensure that users understand what they are supposed to do at a glance and allow you to funnel users down the path you desire.

Over the next few weeks, I’ll be focusing on a series of posts on building a new product, from launch to rapid iteration to driving long-term value. The first phase, launching the product, will consist of multiple posts discussing important concepts to consider when first moving from ideation to getting the product built and out in front of users. The posts in this phase will focus on understanding users.

You’ve probably heard that Iron Man 2 is coming to theaters next month. It’s not the only sequel to a major movie or movie series that will arrive in 2010. Wall Street 2, Shrek 4, Toy Story 3, Little Fockers, Sex and the City 2 and new Twilight and Harry Potter movies are but a handful of sequels or remakes set to release this year. The weeks surrounding the debuts of these movies are a prime time for people to watch the movies that came before them in the series, either for the first time or as a refresher.

However, over the years I’ve noticed, regardless of the cable company, that the earlier movies do not make it to On Demand during this time period. If I go to the local Blockbuster, they are inevitably out of their handful of copies of the earlier movie. Maybe there is a reason that cable companies seem to miss this revenue opportunity dozens of times per year, or maybe they are just too focused on new releases to notice.

I did a little research online and found that Professor Thorsten Hennig-Thurau, of Cass Business School in London has studied sequels in depth and found that dvd sales of the earlier movie do indeed increase when the sequel is released in theater. People want related content; the internet may have pushed relevancy to the forefront, but it’s always been important to us.

Gas Stations make most of their money on retail sales, not gasoline. In fact, for many gas is a loss leader and sales inside the convenience store are what keep them afloat. For some stations, most of their traffic comes during rush hours when people are not price sensitive and when people are in a hurry to pay at the pump and leave, not go inside and find a snack to eat. So perhaps incorporating some Revenue Management techniques could help the station to bring in customers during the slower times, which also may coincide with the hours that people are more likely to have a snack craving.

Say a station currently charges $3.00 a gallon for gas at all times. They could decide to lower the price to $2.95 from 1-5 each day. However, although the station is in a busy part of town, the road it’s on isn’t very crowded during that time of day, so the store sees only a 10% increase in customers, which doesn’t do much for the store’s bottom line. The increase in customers doesn’t increase retail sales enough to make this a profitable play.

In order to fully realize the plan, the gas station could login to gasbuddy.com at the start of the discounted period and update their price to $2.95, making them the cheapest gas station in the area. Now the price sensitive customers in the area will go a few streets out of their way to get the discounted gas and the gas station could see a much higher bump in traffic during the afternoon. Gasbuddy is a free marketing vehicle for savvy gas stations, allowing them to leverage their discounted rates into a lot more traffic than relying solely on passersby to notice the cheaper gas and stop.

In the past, business owners would have to pay to broadcast sales to customers, but today there are online avenues to freely broadcast sales, no matter what category of business. Gasbuddy.com is focused on gas stations and gas prices specifically, but sites like fatwallet and slickdeals can be leveraged for product and service sales on a local or national level.

Products and Services should be priced by what the market is willing to pay, not what they cost to make or provide. However, there are many different price points available in the market. There are some customers that will pay a premium for your product or service because it brings them enough value or they just aren’t very sensitive to price. Other customers want a much lower price in order to buy from you. If you set your price point at the lower end, then you’ll gain more customers, but will be leaving money on the table. A higher price may bring in more revenue per customer, but decimate your potential user base.

It isn’t always clear what the best price is for a product or service, but what is clear is that the closer you can get to charging each customer their max spend, the more money you’ll make. To do this you need to study your market and customers and make educated guesses at the number of customers you can bring in at various price points. Then, you need to figure out how to charge the price sensitive customers less while still charging the customers who don’t care as much about price a premium. Doing this is called Revenue Management.

Companies accomplish the above in a variety of ways. Electronics manufacturers sell refurbished goods, which allows the price sensitive customers to buy in at a lower price point while still getting a higher amount from the customers who buy new. Golf ball makers will use a sharpie to put an X on perfectly good golf balls and then sell them at a discount as balls with cosmetic imperfections. Yeah, they have an X on them, that is the imperfection. This allows the manufacturers to still charge top dollar for the regular balls, keeping their place as a premium brand, and also get customers who can’t afford the premium price to buy the X-out balls.

Another application of Revenue Management is the attempt to shift customers from busy times when the service sells out to the slow times when business is idle. Golf courses charge less during the week than they do on weekends because they are booked on weekends even with the higher prices. By discounting weekdays, they bring in some customers they wouldn’t otherwise. Movie theaters do the same thing with Matinee pricing and many restaurants have lunch specials and happy hour. The danger here is if you discount slow times and your busy time customers shift to the discounted times leaving you with open availability during the premium time slots, causing a loss in revenue. The time and amount of discount need to be properly planned as the intent is to bring the overflow traffic of the busy times to the slower times, where they will provide revenue for you as opposed to going to the competition because you are booked.